European Equities: German Retail Sales and Geopolitics in Focus

The Majors

It was a positive end to the week for the European majors, with the DAX30 rising by 0.27% to lead the way. The EuroStoxx600 and CAC40 saw more modest gains of 0.21% and 0.13% respectively.

While the EuroStoxx600 trailed the DAX30, it was a record close on Friday.

Positive sentiment towards trade and the anticipated boost to global trade terms continued to provide support at the end of the week.

The ECB’s economic bulletin also painted a slightly rosier picture, though there was a downward revision to growth forecasts to 2020…

The Stats

It was a quiet day on the Eurozone economic calendar on Friday. There were no material stats from the Eurozone to provide the European majors with direction.

There were also no stats from the U.S to provide direction, with volumes on the lighter side during the Christmas holidays.

A lack of stats placed greater emphasis on the ECB’s final economic bulletin of the decade.

Key points from the bulletin included:

• Incoming economic data and survey information, while remaining weak overall, point to some stabilization in the slowdown of economic growth in the euro area.
• The service and construction sectors remain resilient in spite of some moderation in the 2^nd half of 2019.
• Favorable financing conditions, further employment gains, in conjunction with rising wages, the mildly expansionary euro area fiscal stance and growth in global activity are expected to support the euro area economy.
• On the projections, growth for 2020 was revised downwards to 1.1%. In 2021 and 2022 growth is expected to pick up to 1.4%.
• Risks towards growth remain, however. Geopolitical factors, rising protectionism, and vulnerabilities in the emerging markets leave risks to growth tilted to the downside. This has become less pronounced, however.

The Market Movers

For the DAX: It was a mixed end to the week for the auto sector. BMW led the way, rising by 0.85%, with Daimler and Volkswagen seeing more modest gains of 0.08% and 0.31% respectively. Continental bucked the trend on the day, falling by 0.24%.

It was also a mixed day for the banks. Commerzbank rose by 0.22%, while Deutsche Bank fell by 0.41%. 

From the CAC, it was a mixed day for the banks. BNP Paribas and Soc Gen fell by 0.02% and by 0.30% respectively, while Credit Agricole rose by 0.04%.

It was a bearish day for the French auto sector, however, with Peugeot and Renault falling by 0.05% and by 0.54% respectively.

On the VIX Index

The VIX rallied by 6.17% on Friday. Reversing a 0.16% decline from Thursday, the VIX ended the day at $13.4.

A bounce from a day low of 11.9 in the early afternoon delivered the upside on the day.

While optimism over trade had provided support in the earlier part of the week, concerns over how phase 2 of trade negotiations will play out tested the U.S majors at the end of the week.

The S&P closed out the day flat, with the NASDAQ down by 0.17%, while the Dow saw a modest 0.08% rise on the day.

There’s been increasing talk of a market correction. This time last year, it was Christmas Eve that had delivered one of the Dow’s worst days…

The Day Ahead

It’s a relatively busy day on the Eurozone economic calendar. Key stats include November retail sales figures out of Germany and 3^rd GDP and December prelim inflation figures out of Spain.

We expect Germany’s retail sales figures to have the greatest impact on the day.

With the ECB continuing to rely on consumer spending to support the Eurozone economy, the figures will need to impress to prevent the DAX30 from hitting reverse.

On the geopolitical front, any further updates from Beijing or Washington will also influence as will sentiment towards Brexit.

Over the holidays, there was some pessimistic chatter on Britain and the EU having sufficient time to wrap up a trade agreement within 2020…

In the futures markets, at the time of writing, the DAX30 was down by 26.5 points, while the Dow was up by 44 points.